Administering Construction Loans
Construction loans for both residential and commercial real estate (CRE) remain a major part of commercial bank lending. Residential construction continues to expand slowly, with remodeling outpacing new homes in some markets. CRE construction projects have seen strong growth in most areas. This program provides an overview of the many issues involved in both residential and commercial construction, as well as key differences between them. The focus is on the issues behind the various procedures in construction.
Many community banks attempt to utilize versions of their residential formats and policies to administer commercial construction loans; however, this generally does not adequately control risk in commercial situations due to several important differences between residential and commercial projects.
- What is construction risk?
- Types of construction situations: full construction vs. repair/remodel
- Differences between residential and commercial construction loans
- Issues with construction contracts and budgets
- Additional due diligence, beyond a conventional mortgage application and underwriting, such as a detailed cost estimate (Description of Materials form)
- Contractor credentials and financial strength
- How is the construction loan going to end (get repaid)?
- The interest reserve – a common provision, but not always automatic
Five items that determine how you handle a specific loan
- The type of project (full construction vs. repair/remodel)
- The loan approval and related conditions or contingencies
- The commitment letter written to the customer
- Your bank’s policies and procedures
- The construction loan agreement
- Common documentation, including surveys and title insurance, plus surety bonds in commercial situations
- Common funding controls, including inspections, lien waivers
andfunds disbursement methods
- Dealing with cost overruns, delays
- Completion of the project and (if applicable in commercial situations) release of the retainage, plus project stabilization
- Special issues with owner-occupied loans
Richard Hamm has been training bankers for 26 years, designing and delivering courses specializing in commercial lending and credit, including portfolio and risk management, commercial real estate (CRE) and appraisals, plus selling and negotiating skills, and director training. His clients include:
- National associations such as the American Bankers Association (ABA) and the Risk Management Association (RMA)
- Regional banking schools such as the Graduate School of Banking at Colorado and other major schools
- State banking and community banking associations in ten states
- Plus individual banks
He is based in Huntsville, AL and has owned/operated Advantage Consulting & Training for 12 years, after a 22-year banking career including senior positions in lending and credit, plus president during the formation of a community bank. He has BS and MBA degrees from the University of Alabama.
8:30 a.m. Registration & Continental Breakfast
9:00 a.m. Program Begins
12:00 p.m. Lunch (included)
1:00 p.m. Program Resumes
4:00 p.m. Program Adjourns
Indiana Bankers Association
8425 Woodfield Crossing Blvd., Suite 155E
Indianapolis, IN 46240
$225 IBA Member
$155 Each Additional IBA Member
Participation in IBA programs is limited to members, associate members, and nonmembers from an eligible membership category at
Commercial lenders, credit analysts and support staff that deal directly with commercial construction loans; consumer lenders, mortgage bankers, private bankers and support staff involved in residential construction lending; small business lenders, loan review specialists, special assets officers, lending managers and credit officers indirectly involved in the construction lending process.
Marcy Borden, Education Coordinator
You will receive an e-mail confirmation at registration. If you have questions, contact Marcy Borden at 317-387-9380 or via e-mail at firstname.lastname@example.org.
Within three or more business days prior to the day of an educational program, no cancellation charge will be assessed. Within two days prior, 50% of the fee is assessed. Refunds are not provided for cancellations the day before or absences on the day of the program. Substitutions are welcome at